Markets are improving as the FTSE 100 opened 0.6% higher this morning, alongside the S&P 500 up 1.21% and Dow Jones by 1.23%.
This follows the volatility global markets, including the FTSE 100, faced last week, after the Dow Jones took its biggest hit in six years and US indices officially entered correction territory.
Lee Wild, head of equity strategy at interactive investor, said this bounce back is no different as “where Wall Street goes, other markets follow”.
He said: “Traders are quickly getting used to higher bond yields, higher inflation and another round of hikes in global interest rates that will follow, so much so that US stocks are recovering twice as fast as in London.
“Markets will remain volatile, for sure, but we’ve just found out that big investors can’t stay out of this market for long, and demand for equities typically picks up in the weeks before tax year-end.”
Meanwhile, sterling continued to strengthen this morning, despite retail sales results by Office for National Statistics (ONS) showing the year-on-year growth rate for quantity bought in food stores with a decline of 0.9% for the sixth consecutive month. ONS said this was largely owing to a continued rise in food store prices.
Wild argued these UK retail sales figures could act as a “potential catalyst.”
He said: “The Bank of England will struggle to hike interest rates without an improvement in consumer spending, but that will come as an anticipated decline in the cost of living feeds through to more significant growth in real wages.”
Is this the end of the bull market?
GAM’s group chief economist Larry Hatheway said it is too early to call it the end as “we are still in an environment of strong global growth and rising earnings, particularly in Europe”.
“However, we are entering a new phase that will be characterised by more volatility and further corrections”, he added. “That is driven by growing uncertainty in the macro environment. Inflation is beginning to show the first signs of acceleration in the US, which we are also likely to see in Europe.
“This calls into question the predictability of monetary policy which has supported equity markets. The dynamics will change going forward, even if equity markets still advance this year.
“We are entering a new era, which we prefer to call the post new normal. The new normal was characterised by low growth, low inflation and supportive monetary policies.”
